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A Primer on Lean Manufacturing Using Microsoft Dynamics AX: Case Studies

Written By: Dr. Scott Hamilton
Published On: March 9 2009

A lean manufacturing environment employs kanbans for coordinating and executing material replenishment. The definition of kanban policies governs the creation and behavior of kanban tickets, as described in part one of this series (please see A Primer on Lean Manufacturing Using Microsoft Dynamics). Case studies provide one approach for understanding how kanbans support variations in lean practices, including the case where a work cell has demands stemming from kanbans and production orders.

For more background, please see excerpts from the book Managing Your Supply Chain Using Microsoft Dynamics AX (Hamilton, 2007): Microsoft Dynamics AX 4.0 for Distribution Environments and Microsoft Dynamics AX 4.0 for Manufacturing Environments.

Case Study #1: Pull-to-order Environment

This first case study illustrates usage of various types of kanban tickets described in the previous part of this series. In this case, the replenishment policies for the end item reflect a pull-to-order (PTO) manufactured kanban, whereas replenishing kanbans are used for the components. PTO represents a special case of make-to-order (MTO) manufacturing environments, with kanban tickets providing linkage to sales orders and acting as the primary coordination tool.

The case study involves a two-level product structure to build the end item, identified as Product #1 in figure 1. The left side of figure 1 depicts the product structure in terms of the bill of material (BOM) and routing. A final assembly cell produces Product #1 to sales order demand, and completed items are placed in a shipment staging area for subsequent shipment. Production of Product #1 requires Subassembly #1, Part #1A, and other purchased components. These purchased components are stocked next to the final assembly cell, with receipts direct to the location. An inventory location on the factory floor is commonly called a floor stock location or a supermarket location. The right side of figure 1 depicts the factory layout in terms of cells and inventory locations.

Subassembly #1 is produced to stock in the subassembly cell, using Part #1B and other purchased components. These purchased components are first received in a stockroom, and then transferred to the floor stock location next to the subassembly cell. Completions of Subassembly #1 are placed in the final assembly floor stock location.

Purchased kanbans provide the basis for replenishing purchased material stocked in the stockroom and the final assembly floor stock inventory locations. A purchased kanban acts as a signal to the vendor, and the kanban receipt transaction updates the item's inventory balance. Transfer kanbans replenish the floor stock inventory for the subassembly cell with material transferred from the stockroom. A transfer kanban acts as a signal to the stockroom, and the kanban receipt transaction transfers inventory between the two locations. The left side of figure 2 depicts these kanban signals and the associated kanban receipts.

A sales order line item for the end item (Product #1) requires realistic delivery promises to help align demands with available capacity. Delivery promises can be based on the planning calculation logic within Dynamics AX. In this case, the delivery promises for a manufactured item with PTO kanban policies can also be based on available capacity of the associated final assembly cell. A shipment schedule coordinates shipping activities.

A manufactured pull-to-order kanban is generated automatically for the end item (Product #1). The PTO kanban can be directly linked to the sales order (where the quantity and due date match the sales order), or the PTO kanban can represent the sum of sales order demands for the same item and date, depending on policies associated with the production schedule for the final assembly cell. This PTO kanban acts as a signal to the final assembly cell, and displays on the cell's production schedule. In this case study, the kanban completion transaction updates the end item's inventory balance (in the shipment staging area location), and auto-deducts the component inventory (in the final assembly floor stock location).

A manufactured kanban for Subassembly #1 replenishes the floor stock inventory for the final assembly cell. In this case study, the kanban completion transaction updates the subassembly's inventory balance (in the final assembly floor stock location) and auto-deducts the component inventory (in the subassembly floor stock location).

The work cell's production schedule provides a second coordinating tool for manufactured kanbans. The policies associated with the production schedule affect scheduling logic. For example, the production schedule of manufactured kanbans can be adjusted to reflect interspersed production of various items, such as producing some of each item throughout the day rather than producing the entire kanban quantity for one item before producing the next kanban. This concept is termed heijunka scheduling.

The shipping schedule displays sales order line items that need to be shipped, along with information about the item, quantity, ship date, kanban status, and the associated production schedule. This information supports close coordination between shipping and production, since shipping has visibility of completed and in-process production.

Case Study #2: Multilevel PTO Environment

The second case study illustrates usage of PTO kanbans for the final assembly cell and the associated feeder cell or cells. This case study uses the same two-level product structure shown in figure 1, and the only difference in figure 2 would be the use of a manufactured PTO kanban for the subassembly cell. The relationship between a cell and its feeder cells (termed an assembly structure) must be predefined in order to support multilevel PTO environments. The assembly structure typically reflects portions of the multilevel BOM where the manufactured component employs PTO kanbans for coordination.

Case Study #3: Kanbans for a Stocked End Item

The third study illustrates usage of replenishing kanbans for the end item, with inventory stocked in a finished goods location. However, PTO kanbans are used to transfer inventory from the finished goods location to the shipment staging area for subsequent sales order shipment. The transfer PTO kanbans act as the basis for picking the stocked end item. The unique characteristics of this case study are shown in figure 3 and described below.

A sales order provides the starting point, where the sales order line item identifies the shipment staging area as the “ship-from” location. The kanban replenishment policies for this end item and staging location reflect a PTO transfer kanban so that it is replenished from the finished goods location. The use of a template minimizes the effort to define these replenishment policies for every end item. If there is insufficient finished goods inventory, a manufactured PTO kanban can be automatically generated so that the final assembly cell produces the item. The shipping schedule displays the status of these PTO kanbans, thereby supporting closer coordination of shipping, finished goods inventory, and production.

Supporting Lean and Traditional Manufacturing Practices

The lean manufacturing application provides new constructs that supplement the Microsoft Dynamics AX functionality so that a single system can support lean and traditional manufacturing practices. Item replenishment can be based on kanban policies or the item coverage policies employed by AX planning calculations (such as period lot sizing logic). For example, some firms have introduced lean into a specific product line, while other product lines employ production orders. Another example involves the introduction of lean for final assembly, while subassembly operations employ production orders. Other examples include

  • A work cell produces items stemming from kanban and production order demands, typically during the transition period from traditional to lean. The production schedule for this work cell can incorporate kanban tickets and planned production orders, and can support reporting of kanban completions and production order completions.

  • It is possible to employ both sets of replenishment policies for the same items so that kanban policies coordinate actual replenishment while delivery promises, projected material, and capacity requirements can be based on planning calculations.

  • Projected requirements based on planning calculations can be used to calculate the kanban quantity and number of kanbans for an item.

The lean functionality significantly simplifies the complexity of transaction reporting in comparison to traditional approaches. A typical purchase order receipt in Dynamics AX, for example, requires creating the purchase order, identifying the purchase order during receipt, recording a receipt quantity within delivery tolerances, and determining what to do when the received quantity does not match the ordered quantity. With kanban tickets, the receipt transaction only requires the identification of the kanban ticket and quantity. The simplification is even more apparent when comparing transaction complexity between production orders and manufactured kanbans.

Concluding Remarks

This primer on lean manufacturing for Microsoft Dynamics AX explained how to handle some of the variations in lean practices. It covered the definition of kanban policies that govern the creation and behavior of kanban tickets. Kanbans and their replenishment policies act as alternatives to the use of planning calculations and item coverage policies, and to the use of planned orders and action messages for coordination and execution purposes. Several case studies highlighted the variations in lean practices and the use of kanbans. Kanbans and production schedules represent new constructs that supplement the Dynamics AX functionality so that a single system can support lean and traditional manufacturing practices. The new constructs also simplify transaction reporting and system usage, thereby contributing to the elimination of waste.

This concludes the two-part series on Lean Manufacturing Using Microsoft Dynamics AX.

About the Author

Dr. Scott Hamilton has consulted with more than a thousand companies worldwide and has conducted several hundred executive seminars on supply chain management (SCM) and enterprise resource planning (ERP) issues. He also helped design three influential ERP software packages. His books include Maximizing Your ERP System and the APICS CIRM textbook on information systems for manufacturing, and previous books on Microsoft Dynamics AX and Dynamics NAV. Hamilton can be reached at ScottHamiltonPhD@aol.com or at 612-963-1163.

 

 

 

 

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